10-QPeriod: Q3 FY2009

MORGAN STANLEY Quarterly Report for Q3 Ended Sep 30, 2009

Filed November 9, 2009For Securities:MSMS-PKMS-POMS-PQMS-PAMS-PFMS-PIMS-PLMS-PPMS-PEMSTLW

Summary

Morgan Stanley's (MS) third quarter 2009 results reflect a significant rebound in market activity compared to the previous year, although the company experienced substantial losses related to its own credit spread on borrowings. Net revenues for the quarter were $8.675 billion, a decrease from $18.011 billion in the prior year's quarter, largely impacted by negative credit spread movements on the company's own debt, which resulted in losses of $0.9 billion compared to gains of $9.7 billion in Q3 2008. However, the Institutional Securities segment showed resilience in investment banking, with underwriting revenues up 74%, though trading revenues declined significantly across equity and fixed income. The Global Wealth Management Group saw a substantial boost in net revenues (up 91%) driven by the consolidation of Morgan Stanley Smith Barney (MSSB), which closed in May 2009. Despite these challenges, the company's capital ratios remained strong, with Tier 1 capital to risk-weighted assets at 15.4%, indicating a solid capital base.

Financial Highlights

43 data points
Beta

Revenue

$8.47B

Net Income

$757.00M

8.9% Net Margin

EPS (Diluted)

$0.38

Total Assets

$769.50B

Cash & Equivalents

$28.61B

Free Cash Flow

-$8.72B

Financial Statements
Beta
Revenue$8.47B
Operating Income$814.00M
Interest Expense$1.35B
Net Income$757.00M
EPS (Basic)$0.39
EPS (Diluted)$0.38
Shares Outstanding (Basic)1.29B
Shares Outstanding (Diluted)1.30B

Key Highlights

  • 1Morgan Stanley reported a net income of $757 million for the quarter, a sharp decrease from $8.151 billion in the same period last year, heavily influenced by a $0.9 billion loss related to tightening credit spreads on its own borrowings.
  • 2Net revenues declined significantly to $8.675 billion from $18.011 billion year-over-year, primarily due to the aforementioned credit spread impact and lower trading volumes.
  • 3The Global Wealth Management Group's net revenues more than doubled to $3.029 billion, largely due to the consolidation of Morgan Stanley Smith Barney (MSSB) effective May 31, 2009.
  • 4Institutional Securities segment's net revenues dropped to $4.974 billion from $16.043 billion, primarily due to large gains in the prior year from widening credit spreads on borrowings, which were offset by losses in the current quarter.
  • 5Investment banking revenues within Institutional Securities increased by 11% to $1.039 billion, with underwriting revenues showing a substantial 74% increase.
  • 6Equity and fixed income trading revenues saw significant declines, reflecting lower market volumes and volatility, with equity trading down 82% and fixed income down 77% year-over-year.
  • 7The company maintained strong regulatory capital ratios, with its Tier 1 capital ratio at 15.4% of risk-weighted assets, well above the regulatory minimum.

Frequently Asked Questions

The primary driver for the significant decrease in net income was a loss of approximately $0.9 billion due to the tightening of Morgan Stanley's credit spreads on certain long-term and short-term borrowings that are accounted for at fair value. This was a reversal from the substantial gains recorded in the prior year's quarter from the widening of credit spreads on similar borrowings.

The consolidation of Morgan Stanley Smith Barney (MSSB), which became effective on May 31, 2009, significantly boosted the Global Wealth Management Group's performance. Net revenues for the segment more than doubled to $3.029 billion, driven by higher revenues from asset management, distribution, administration fees, commissions, and trading activities, as well as the inclusion of MSSB's operating results.

The Institutional Securities segment experienced a significant decrease in net revenues to $4.974 billion from $16.043 billion year-over-year. While investment banking revenues increased by 11%, largely due to a 74% rise in underwriting revenues, this was offset by substantial declines in trading revenues across equity and fixed income, reflecting lower market volumes and volatility, and the negative impact of credit spread movements on the company's borrowings.

Yes, Morgan Stanley maintained strong capital positions. As of September 30, 2009, the company reported a Tier 1 capital ratio of 15.4% of risk-weighted assets and a Tier 1 leverage ratio of 6.2%, both of which were well above regulatory requirements, indicating a solid capital base.